Money supply growth and inflation: Investigating the link

For this worksheet you will need to access the following data from the TimeWeb sample data. Put the series into your spreadsheet package (you can do this easily by choosing the option to view as CSV data):

• CZBHAU UK Retail Prices all
• EUADAU UK M4 money supply

If you've had problems creating a scattergram, don't worry, you can always have a look at our version [Excel sheet 17K].

Now, using your understanding of the correlation, your task is to find the Product-Moment (or Pearson's) Correlation Coefficient for the period 1981-2000.

It will be worth reviewing your understanding of this concept here. You could do this by having a look back at the explanation of correlation and correlation coefficients.

In steps, the task is as follows:

1. Extract from each series the data for 1981-2000.
2. Create a table to handle the Product-Moment calculation.
3. Calculate the value of r.
4. Check your answer by using the Excel correlation function, (Click on function in Excel, then choose Statistical then Correl from the function options box).

Now answer the following questions:

Did you have trouble constructing the table to deal with the Product-Moment calculation? Have a look at our version [Excel sheet 17K] and see how your one compares.

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